For-Profit College Lobbying Group Sues Obama Administration Over Regulations

More than a month after the Obama administration issued weaker-than-expected regulations aimed at reining in abuses at some for-profit colleges, a trade association for the industry filed a lawsuit on Wednesday seeking to strike down the new rules governing excessive student debt.

The lawsuit is a perplexing move for the for-profit college industry, which aggressively fought the Obama administration’s crackdown for more than a year, and ultimately succeeded in getting final regulations last month that were universally regarded as being substantially weakened from those proposed a year earlier.

The market has signaled that investors approved of the measures: Since the Obama administration issued the “gainful employment” regulations in early June, the stocks at many publicly traded for-profit college companies have soared. Executives at for-profit college corporations, including University of Phoenix founder John G. Sperling, have cashed in on the rise by selling millions of dollars worth of stocks since the rules were issued.

Yet despite the apparent victory by the industry’s multi-million dollar lobbying and campaign finance efforts over the past year, the lawsuit from the Association of Private Sector Colleges and Universities calls out the Obama administration’s Department of Education for writing “fatally flawed” regulations that will result in “massive disincentives on private sector schools that currently seek to educate low-income, minority, and other traditionally underserved student populations.”

A spokesman for the association said he was unable to comment on why the lawsuit was filed despite the positive reception of the regulations from the stock market.

Department of Education spokesman Justin Hamilton said in a statement, “Our regulations offer students and taxpayers the protection they deserve. These student safeguards rest on a sound legal foundation.”

Critics of the industry said they were surprised that the trade group would come out swinging after the markets signaled a total victory.

"I’m kind of taken aback by this total rejectionist position," said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, who has followed regulations on for-profit higher education for years. “They’ve decided that total war is the way to go.”

The lawsuit argues the administration does not have the authority to move forward with the “gainful employment” regulations, which test programs at for-profit colleges and other vocational schools based on the percentage of students who are able to repay student loans and the amount of overall student loan debt compared to students’ income.

“This lawsuit is necessary in order to protect 3.8 million students who attend private sector colleges and universities today and those who will attend our schools in the future,” Brian Moran, the group’s interim president and chief executive, said in a statement.

Supporters of stricter accountability for for-profit colleges -- which have taken in a disproportionate amount of federal student aid dollars over the past decade and contribute to nearly half of all federal student loan defaults -- see the issue of protecting students in a different light.

The “gainful employment” measures were conceived by the administration as both an accountability test for the federal student loan program and as a consumer protection measure for students who are often reeled in by aggressive recruiting tactics. Under the administration’s original proposal last summer, programs could immediately lose access to lucrative federal student aid dollars that fuel the bulk of profits if too many students had unsustainable debts.

After a relentless lobbying and public relations campaign by the industry, programs were given an additional three years to come into compliance with the rules. Instead of potentially losing access to federal student loan and Pell grant dollars after failing debt tests for one year, programs must now fail tests three out of four years in order to be deemed ineligible.

The Association of Private Sector Colleges and Universities has filed litigation against most of the major regulations imposed on their industry since the beginning of the Obama administration. A federal judge ruled earlier this month on a lawsuit by the group that disputed additional regulations on the for-profit higher education industry: rules meant to hold schools accountable for recruiters who make misleading statements to prospective students, and rules meant to crack down on bonuses and raises given to recruiters based on the number of students enrolled.

The judge ruled in favor of the Department of Education on those rules, but found fault with an administration rule that required schools to get separate state authorizations for students attending online.

The industry group has appealed the judge’s decision on the misrepresentation and student recruitment rules.